Weekly Summary on USD, EUR, GBP, JPY, AUD, CAD and RMB

USD – The dollar is back towards the top of its recent ranges this morning as investors shift their focus to the start of Q3 earnings season. While the DJIA, S&P 500, and NASDAQ all remain within striking distance of their all‐time highs, a recent softening of economic data worldwide suggests that profits may not be as strong as hoped. Consequently, the risk‐off trade is once again directing capital flows into “safe‐haven” assets like the USD. Despite the Fed’s recent announcement of virtuallyunlimited quantitative easing, the dollar remains well supported especially as the US economy appears to be outperforming its peers. After last week’s surprisingly strong employment reports on Friday, investors will get a preliminary read of inflation this week along with a mixed slate of other key data. Wednesday sees the release of wholesale inventories and the Fed’s Beige Book. Thursday brings the reading of the trade balance, weekly jobless claims, import prices and the monthly budget statement. The week closes out with U. of Michigan confidence and the producer price index on Friday. With the majority of the releases expected to fall off from their previous readings, the risk‐off trade may gain momentum in the coming days. Thus, the dollar will likely remain well supported within its recent ranges with a limited downside as the struggling global economy keeps investors relatively risk averse.

EUR – The euro extended its declines from late last week as the IMF issued a warning of steeper‐than‐expected declines in the Eurozone economy. Echoing the international body’s warning of a worse shortfall, ECB President Draghi told the EU parliament in Brussels that there is “no alternative to austerity” even with further cuts in government spending threatening a deeper recession. Similarly, German Chancellor Merkel maintained pressure on Greek leaders to meet specific austerity benchmarks, reiterating her desire to keep Greece in the currency bloc. While the coalition policymakers agreed in principle,Athens was on virtual lockdown with public disapproval threatening to boil over. Consequently, the common currency will likely retest its 200‐day MA, currently at 1.2867, in the coming days with weak economic data out of the region weighing on the outlook for the currency. However, the downside may be limited in the near term as policymakers look to be at the minimum trying to work with one another. Despite Merkel’s conservative tone, it is a much softer tone than that seen of just one year ago when she told then Greek PM Papandreou that a proposed referendum on the country’s “bailouts” was paramount to a referendum on their use of the EUR.

GBP – Sterling begins the week with a retest of the key 1.60 handle against the dollar while snapping a seven‐day losing streak vs. the EUR. British industrial and manufacturing production both showed steeper‐than‐expected declines in September, each registering a ‐1.2%. Nevertheless, investors are increasingly attracted to British assets as an alternativefrom those of other EU nations. Moreover, PM Cameron today came the closest yet to calling for a referendum on the UK’s membership in the EU. Cameron told reporters that the ongoing euro crisis has given Britain an opportunity to seek a “fresh settlement” with the bloc and that a referendum would be the “cleanest, neatest, simplest and most sensible way of doing things.” With separate currencies and monetary authorities, a split from the EU would likely be a positive for the GBP, at least as compared with the EUR.

JPY – The yen is back towards the top of its recent ranges as policymakers’ recent interventionist rhetoric cools down a bit. Consequently, the dollar‐yen pair has now broken below both its 200‐day and 50‐day MAs as investors remain rather risk averse. Moreover, data released last night showed that Japan’s current account surplus gained for the first time in 18‐months as lower imported energy costs offset gains in the yen and weaker foreign demand.

Commodity Currencies – The commodity linked currencies are mostly lower to begin the week as falling stocks and commodities sap demand for riskier assets. The CAD fell from recent highs in early trading despite modest gains in the price of oil – Canada’s main export. Meanwhile, Canadian housing starts fell by less than expected, coming in at 220.2K versus the205.0K that was anticipated. Similarly, the MXN fell back to the lower end of its recent ranges as the bi‐weekly reading of Mexican inflation gained by less than expected as lower instances of bird flu helps to stabilize food prices. With inflation gains slowing, investors are pricing in a possible interest rate cut from the Mexican central bank as policymakers look to protect against slowing foreign demand for Mexican exports. The AUD pared overnight gains, appearing to have resumed its declines back towards parity with the USD as investors price in further RBA rate cuts. Investors will take note of a key Australian employment report due later this week as the nation’s economy shows signs of slowing.

RMB – USD/CNY fixing came in at 6.3441, slightly higher than the previous 6.3426 fix, while USD/CNH saw 6.2916, ranging from 6.2900‐ 6.2930. Resuming trade after last week’s Golden week holiday, the Shanghai Composite closed up1.96% after PBoC offered an ample capital injection of 265 billion yuan ($42.1B) the second largest capital injection ever. Market participants will continue to focus on the outlook for policy stimulus given the recent comments from PBoC Governor Zhou calling for “preemptive, targeted and effective measures.”